Clyde Prestowitz is the founder and president of the Economic Strategy Institute (ESI), where he has become one of the world's leading writers and strategists on globalization and competitiveness, and an influential advisor to the U.S. and other governments. He has also advised a number of global corporations such as Intel, FormFactor, and Fedex and serves on the advisory board of Indonesia's Center for International and Strategic Studies.

September 30, 2013

Just as events in Syria are demonstrating a huge shift in American foreign-policy doctrine in the Middle East, so are recent developments in the Asia-Pacific region signaling the same kind of shift there.

In Syria, it has become clear that the United States will no longer intervene just for the sake of enforcing its will wherever turmoil arises. Of course, this move is also a sign of the end of American hegemony. In the case of East Asia, the Obama administration’s major policy initiative has been the so-called "pivot to Asia," and the centerpiece of that has been negotiation of the Trans-Pacific Partnership (TPP) free trade agreement. Although the free trade label sounds boring, the deal is not really about trade. Rather, it is about assuring Asian friends that America is still committed to them.

That’s what U.S. Trade Representative Michael Froman and the State Department have been saying for the past couple of years. It sounds good. Who can object to assuring our friends of our commitment to them? But that bland, motherhood-and-apple-pie reassuring veils something of deeper significance. As a high-ranking Singaporean official once explained to me, China "is like a new sun in the solar system, and all the planets [countries] are readjusting their orbits." His concern and that of most other countries in East Asia and the Pacific is that his country will become fixed in the Chinese orbit with no counterweight to allow some freedom of action. What he wanted was for America to be the counterweight against China. What Froman is really saying is that America will indeed act as the counterweight. This is an expression of American hegemony in East Asia and the Pacific.

That the TPP is not just about trade is signaled by the fact that the negotiations over it have been held in strict secrecy. Few, including members of U.S. Congress who eventually must sign off on the deal, have any idea of what is actually in the draft agreement. But what definitely is not there is any provision to deal with the problem of currency manipulation.

Let me briefly explain that. A number of countries, through a combination of jawboning and using government funds to buy dollars in the international currency markets, act to keep their own currencies artificially undervalued. This is a way to make their exports less expensive and their imports more expensive. It is totally at odds with any concept of free trade, but there are no provisions to deal with it in any of the free trade agreements Washington has negotiated. The World Trade Organization has some vague provisions that have never been enforced, and the same is true of the International Monetary Fund. Thus, a country can negotiate to reduce its tariffs from, say, 10 percent to 5 percent or even to 0. These are 50 percent or 100 percent reductions of the tariffs and would be hailed as a major move to free trade. But at the same time, the country could intervene in the currency markets to drive its currency down by 10 to 20 percent and thereby totally offset the effect of the free trade deal. Indeed, this is pretty much what Japan is doing now. While negotiating the TPP, Tokyo has managed to reduce the value of the yen by about 30 percent. Moreover, it has managed to do this without hearing any voice of complaint from its TPP negotiating partners. The other partners don’t complain because they mostly act in the same way. The United States doesn’t complain because, as I said, the deal is not about trade so much as about showing commitment to its Asian friends.

But this past week saw what could be a very important development. Sixty senators wrote a letter to the U.S. president demanding that the problem of currency manipulation be addressed in the TPP negotiations before any deal is submitted to Congress for approval. This followed a similar action by members of the House of Representatives. The meaning of both actions is twofold. First, it signifies that as it now stands, the TPP deal may really not be able to gain passage through Congress. That is to say that the chances of its not being ratified are quite good. The second point of significance is that, as in the case of Syria, the U.S. Congress is telling the administration and the world that geopolitics no longer trump economic and domestic welfare considerations. Congress is saying that free trade deals now truly have to be about trade and not about reassuring allies of U.S. commitment to them. No longer will Congress agree to buy allies with distorted and lopsided trade deals.

The end of American hegemony will be mourned by many around the world and in America, but it is likely to be a very good thing for U.S. workers and the American middle class.